Appellate Bench Upholds Conviction for Non‑Remittance of Employee Contributions; Appellant Directed to Surrender

A bench of Justices Sudhanshu Dhulia and Ahsanuddin Amanullah heard the criminal appeal filed by Ajay Raj Shetty against the High Court of Karnataka’s order dismissing his revision petition challenging conviction under Section 85 of the Employees’ State Insurance Act, 1948 for alleged failure to remit contributions deducted from employees’ wages. The appeal questioned whether the appellant fell within the statutory definition of “principal employer” and could be criminally liable when the company had been declared a sick unit.

The Court upheld the concurrent findings of fact recorded by the trial court, the first appellate court and the High Court that the appellant was liable as a person falling within Section 2(17) of the Act. The Court, in its reasoning, observed: "From the above, it is clear that the definition also includes a ‘managing agent’ of the Owner/Occupier in the case of a factory or ‘named as the manager of the factory under the Factories Act, 1948’ (hereinafter referred to as the “Factories Act”) and for ‘any other establishment’, ‘principal employer’ would include ‘any person responsible for the supervision and control of the establishment’. Therefore, designation of a person can be immaterial if such person otherwise is an agent of the Owner/Occupier or supervises and controls the establishment in question. From the materials available on record, we find that the Appellant falls within the ambit of Section 2(17) of the Act, being a ‘managing agent’." The Court further noted that "the conviction and the sentence does not require any interference" where deductions had been made but not deposited with the ESIC, and therefore dismissed the appeal.

Background The dispute arose after M/s Electriex (India) Ltd. was declared a sick industry by the BIFR and underwent management changes. ESIC officials inspected the company’s premises and reported that Rs. 8,26,696 had been deducted from employees’ wages between February and December 2010 but had not been remitted to ESIC. A private complaint led to prosecution of the appellant and the company under Section 85 of the ESI Act. The Trial Court convicted the appellant under Section 85(i)(b) on 28.09.2013 and sentenced him to six months’ imprisonment with a fine of Rs. 5,000; the first appellate court affirmed the conviction; the High Court dismissed the revision petition on 08.12.2023.

The appellant contended that he was employed only as a Technical Coordinator from July 2009, that the company was already under BIFR proceedings predating his appointment, and that the prosecution failed to prove he held the post of General Manager or was the principal employer. He also argued that sums had since been paid and that criminal liability in such cases required consideration of culpability and the remedial powers of ESIC under the Regulations. ESIC and the company countered that records described the appellant as General Manager and principal employer; the appellant failed to produce appointment letters, pay‑slips or to summon ESIC officials for cross‑examination; and precedent did not bar criminal proceedings against persons responsible for supervision and control.

The Court analysed Section 2(17)’s definition of “principal employer”, distinguishing authorities relied upon by the appellant (notably Gurdial Singh and J K Industries) as inapplicable on the facts or concerned with different statutory schemes (Factories Act). The Court held that designation in records may be immaterial where a person otherwise acted as a managing agent or had supervision and control. The judgment reaffirmed the distinction between offences where contributions were deducted from wages (attracting a minimum one‑year term under Section 85(i)(a) ordinarily) and other cases; it accepted that the trial court had imposed a lesser sentence under Section 85(i)(b) and that courts had limited discretion as to fine. The appeal was dismissed; the appellant was directed to surrender within two weeks, with set‑off for any period already undergone, and to pay the fine if unpaid. The registry was directed to send a copy of the order to the trial court; no costs were imposed. Exemption from surrender previously granted stood withdrawn.

Case Details: Case No.: 2025 INSC 500 Case Title: Ajay Raj Shetty v. Director and Anr. Appearances: For the Petitioner(s): [Names not indicated in the judgment] For the Respondent(s): [Names not indicated in the judgment]